On April 17, 2023 Oncotelic Therapeutics, Inc. ("Oncotelic", "We" or the "Company") (OTCQB:OTLC) reported summary of its financial results for the year ended December 31, 2022 ("FY 2022") as compared to the prior year ended December 31, 2021 ("FY 2021") (Press release, Oncotelic, APR 17, 2023, View Source [SID1234630187]). We are also providing updates on our product and therapeutic development initiatives and other corporate matters. The financial results are based on the 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 14, 2023.
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FY 2022 compared to FY 2021 Financial Results Overview
ONCOTELIC THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31
2022 2021 Variance
Operating expense:
Research and development $ 756,910 $ 3,658,617 $ (2,901,707 )
General and administrative 4,853,664 5,467,266 (613,602 )
Goodwill impairment 4,111,079 - 4,111,079
Total operating expense 9,721,653 9,125,883 (595.770 )
Loss from operations (9,721,653 ) (9,125,883 ) 595,770
Interest expense, net (2,971,046 ) (2,002,813 ) (968,233 )
PPP loan forgiveness - 346,761 (346,761 )
Reimbursement for expenses – related party 533,485 - 533,485
Gain on derecognition of non-financial asset 16,951,477 - 16,951,477
Loss on debt conversion (257,810 ) (27,504 ) (230,306 )
Change in the value of derivatives on debt 142,150 292,149 (149,999 )
Net income (loss) before controlling interests $ 4,676,603 $ (10,517,290 ) $ 15,193,894
Net Income (Loss)
We recorded net income of approximately $4.7 million for the year ended December 31, 2022, compared to a loss of approximately $10.5 million for the year ended December 31, 2021, resulting in a reduced loss of approximately $15.2 million. Factors contributing to our decreased loss are described below.
Research and Development Expense
Research and Development ("R&D") expenses declined by over $2.9 million, to approximately $0.76 million for the year ended December 31, 2022, as compared to approximately $3.7 million for the year ended December 31, 2021. The primary reason for the decreased R&D activities cost is a reduction in clinical trial costs of $1.8 million, for the trials for OT-101 and Artemisinin, a reduction in compensation costs of approximately $1 million and $0.2 million decrease in operational costs as these costs have been borne by our JV.
General and Administrative Expense
General and administrative ("G&A") expenses decreased by approximately $0.6 million, from approximately $4.9 million for the year ended December 31, 2022, compared to approximately $5.4 million for the same period of 2021. The primary causes for the decline in G&A expenses was due to reduced compensation costs of approximately $0.8 million and a decrease in legal and professional costs of approximately $0.5 million, offset by an increase of around $0.7 million in non-cash stock-compensation expenses.
Having established the joint venture with GMP Bio, we can now transfer the responsibility for our drug development program, related to OT-101, as well as some or most of our G&A expenses, to GMP Bio.
We do anticipate increasing R&D activities related to apomorphine, the initiation of new clinical trials for our other oncology indications, continuing or expanding on our clinical trials and development of some of our AI based tools and applications for OT-101 and Artemisinin for COVID-19 and other epidemics. As a result, R&D expenses might increase in the future, contingent on our ability to secure sufficient funding to continue planned development operations. In a similar vein, while we may be able to transfer some or most of the responsibility of our G&A expenses to GMP Bio, G&A expenses could increase due to other corporate activities and will be subject to our continuing ability to secure sufficient funding to maintain planned operations.
Goodwill Impairment
We recorded a goodwill impairment of approximately $4.1 million on the approximately $16.2 million goodwill, which we recorded upon our acquisition of PointR, for the year ended December 31, 2022. No similar impairment was recorded for the same period of 2021.
In the third and fourth quarters of 2022, we observed a steep decline of our stock price, the market capitalization of our Company, and the general economic conditions, which adversely impacted the majority of the pharmaceutical and biotechnology industry. These factors indicated a potential impairment to our goodwill. Although we assessed and determined that the AI technologies assets related to the PointR acquisition were not adversely impacted, and the Company continues to develop other newer AI technologies, the substantial reduction of our market capitalization compelled us to record an impairment on the goodwill to the extent of the difference between the net assets of the Company over the fair value based on the market capitalization. This is in accordance with US GAAP and other authoritative accounting literature.
Interest Expense
We recorded interest expense, comprising amortization of debt costs, amounting to approximately $3.0 million for the year ended December 31, 2022, related to debt raised from the various convertible notes and a private placement memorandum as compared to $2.0 million on convertible notes and a portion of the private placement memorandum for the same period of 2021.
PPP Loan Forgiveness
For the year ended December 31, 2021, we recorded a PPP Loan Forgiveness of approximately $0.35 million. No comparable forgiveness was recorded during the year ended December 31, 2022.
Reimbursement of expenses
During the year ended December 31, 2022, the Company was reimbursed approximately $0.5 million, by Autotelic Inc. a related party, for expenses incurred by the Company on behalf of our JV. No comparable reimbursement was made during the year ended December 31, 2021.
Gain on derecognition of non-financial Asset
For the year ended December 31, 2022, we recorded a gain of approximately $16.9 million on the sale of our non-financial asset, OT-101, as our capital contribution to GMP Bio. We adopted fair value measurements, under the equity method, and the gain was net of the asset’s fair value of approximately $22.6 million, reduced by the intangibles’ value of approximately $0.8 million for OT-101 and goodwill value of approximately $4.9 million recorded during the 2019 Merger with Oncotelic Inc. No comparable gain was recorded during the year ended December 31, 2021.
Loss on Conversion of Debt
For the year ended December 31, 2022, we recorded a loss on conversion of debt of approximately $0.3 million, attributable to the difference in fair value compared to the price at which the debt was converted. We recorded a similar loss of $28 thousand for the debt conversion by Peak One and TFK in 2021.
Change in value of derivatives
For the year ended December 31, 2022, we recorded a gain of $0.1 million due to the change in value of derivatives on the notes issued to our CEO and the bridge investors. Correspondingly, during the year concluded December 31, 2021, we recorded a gain of $0.3 million due to the change in value of derivatives on the notes issued to our CEO and the bridge investors.
Liquidity, Financial Condition and Capital Resources ($s in ‘000’s)
December 31, 2022 December 31, 2021
Cash, including restricted cash $ 261 $ 589
Working capital (16,620 ) (14,828 )
Stockholders’ Equity 19,193 8,158
The Company has incurred net losses every year since inception and as of December 31, 2022, had an accumulated deficit of approximately $25.933 million, which includes approximately $4.1 million goodwill impairment recorded during the fourth quarter of 2022. As of December 31, 2022, the Company had approximately $0.3 million in cash and current liabilities of approximately $16.9 million, with approximately $1.3 million being net assumed liabilities of the Company as part of the Oncotelic Inc. reverse merger, $4.1 million of debt for conducting clinical trials for OT-101 from GMP and $2.6 million in contingent liability to issue common shares to PointR shareholders upon achievement of certain specific milestones.
For more information on our financial condition, please refer to our 2022 Annual Report on form 10-K filed with the SEC on April 14, 2023.
Cash Flows ($s in ‘000s)
Year ended December 31,
2022 2021
Net cash used in operating activities $ (1,453 ) $ (4,434 )
Net cash provided by financing activities 1,125 4,529
Increase/ (decrease) in cash $ (327 ) $ 95
Operating Activities
Net cash used in operating activities totaled approximately $1.5 million for the year ended December 31, 2022. The net income of approximately $4.7 million primarily decreased by approximately $17 million due to a non-cash gain recorded upon derecognition of our non-financial assets and approximately $0.1 million resulting from a change in fair value of derivatives. Net cash mainly increased by approximately $4.1 million due to goodwill impairment, approximately $2.0 million of amortization of debt and finance discounts, approximately $2.9 million of non-cash stock-based expense on issuance of warrants, approximately $0.9 million of stock compensation, approximately $0.3 million of loss on conversion of debt and approximately $0.8 million due to changes in operating assets and liabilities.
Financing Activities
For the year ended December 31, 2022, net cash provided by financing activities was approximately $1.1 million. Net cash provided was due to approximately $0.2 million raised from sale of common stock under the equity purchase agreement with Peak One and approximately $1.0 million raised through issuance of convertible debt.
2022 Business Highlights
In 2022 and continuing in the first quarter of 2023, the Company has made significant progress in various areas. This included the initiation of several clinical trials, in a wide range of indications, such as pancreatic cancer, melanoma, and mesothelioma. The Company also attended and participated in over ten different conferences and events during 2022 and made presentations at several. In April, we completed our much-anticipated joint venture ("JV"), GMP Biotechnology Limited ("GMP Bio"), with Dragon Overseas Capital Limited ("Dragon Overseas"). In October 2022, we established the animal health division for the Company, which led to the formation of Pet2DAO, Inc. The Company was also awarded funding from the Biomedical Advanced Research and Development Authority ("BARDA") for the development of OT-101 for long COVID-19. The award was under the EZ-BAA funding program. We were awarded up to $750,000, the maximum award under the EZ-BAA program.
Highlights post close of FYE 2022:
"FY 2022 was a challenging yet exciting year for all of us at Oncotelic," said Amit Shah, CFO of Oncotelic. "We anticipate FY 2023 to be even more exciting, with the completion and the evolution of our JV, enabling the rapid development of the OT-101 asset. Moving forward, with the Company’s cash requirement significantly reduced due to offloading the development and commercialization costs related to OT-101, as well as a considerable portion of our G&A expenses, we anticipate a substantial decrease in our operational expenses related to OT-101. However, this does not include any funds we may have to raise to develop our other products and G&A expenses related to the Company. We are also evaluating and considering uplisting the Company to a national stock exchange to complete the corporate turnaround."
Additional information is included in the Company’s Form 10-K for the year ended December 31, 2022, filed on April 14, 2023, a copy of which is available free of charge at View Source
Recent Corporate Update
In November 2022, the Company established a Decentralized Autonomous Organization ("DAO") entity, Pet2DAO, Inc. ("Pet2DAO"), as a wholly owned subsidiary. A DAO is an emerging legal structure, with no central governing body, where members share a common goal to act in the entity’s best interest. Pet2DAO is a DAO technology company, combining traditional corporate governance with innovative DAO architecture. The Company aims to engage stakeholders, build value through the DAO, and maintain traditional corporate rigor, including governance, compliance, and accountability by bringing together public company veterans and innovators in AI, blockchain and Web3. The Company will issue regular tokens and non-fungible tokens ("NFT" and collectively "Tokens") of Pet2DAO, called PDAO, to its employees, shareholders and key opinion leaders ("KOLs’), using the Tokens to propose and vote on various programs. In the future, the Company intends to register these tokens with the SEC to enable free trading at a later date. Additionally, in April 2023, we announced that eligible shareholders could claim PDAO tokens to participate in the subsidiary to make proposals and vote on such proposals. Eligible shareholders have 4 months from April 1st, 2023, until July 31, 2023, to claim the Tokens, with 1 PDAO Token issued for every 2,000 Company shares owned by the shareholder as of April 1st, 2023. As previously announced, no fractional Tokens will be issued. For instance, a shareholder owning 4,500 OTLC shares on April 1st, 2023, would receive 2 PDAO Tokens.
Recent Product Development Highlights
In January 2023, we announced the submission of a clinical study protocol to the US Food and Drug Administration ("US FDA") for initiating a Phase 2b/3 Trial (designated "P201") for OT-101, the Company’s transforming growth factor beta 2 ("TGF-β2") inhibitor, as a treatment for metastatic pancreatic cancer. This study will be funded by our JV. The study is titled P201: A Randomized Phase 2b/Phase 3 Study of the TGF-β2 Targeting Antisense Oligonucleotide OT-101 in Combination with FOLFOX Compared with FOLFOX Alone as Second-Line Therapy in Patients with Metastatic Pancreatic Cancer that has Progressed During or Following a First-Line Gemcitabine-Containing Regimen.
In February 2023, we announced the initiation of a second investigator initiated study (IIS) in a series of planned clinical studies. This study will also be funded by our JV. We submitted a protocol, to the US FDA, for a study with approximately 30 patients with non-small cell lung cancer in collaboration with the Fred Hutchinson Cancer Center and a large pharmaceutical company in the field of immuno-oncology. The study will combine our oligodeoxynucleotide OT-101 and a US FDA approved anti-PD-L1 checkpoint inhibitor.
With these two studies, we now have a total of four planned studies, including two that were planned in 2022, for pediatric gliomas and mesothelioma. We continue to work on planning up to 10 studies, including both IIS and our own studies. In addition to these studies, we have a program with BARDA to conduct a study for long COVID-19, related to OT-101 based on our clinical trial in South America.